When it comes to cryptocurrency, people often think of crypto scams more than scams in other types of markets.
Blockchain technology promises enhanced security and features, but at the same time, it also attracts scammers and fraudsters who are ready to adapt in any way possible to extract money from investors.
Like stocks and other investments, cryptocurrency is not a scam; bad actors are there in every field, bringing a bad reputation.
See Also: NFT Scams
What is a Crypto Scam?
A fraudulent activity or scheme to extract money from investors is counted as a crypto scam.
Crypto scams are traps laid out by sly foxes in a digital world. These traps are specially designed to lure unsuspecting investors by taking advantage of their fear and greed.
The majority of crypto scams are the result of investors lacking adequate knowledge.
Furthermore, since blockchain technology is fairly complex, it is not everyone’s cup of tea to fully understand it.
Types of Crypto Scams
There are myriad types of crypto scams, and we are going to list the major ones that are commonly spread worldwide.
1. Hype and Dump Scheme
These schemes include artificially inflating the price of crypto with misleading information.
Once the value of crypto reaches a set target, the scammers, in coordination, sell their holdings, making the market crash and leaving other investors with losses.
Example:
- Squid Token: Carrying on the popularity of the Netflix show, the price of this coin skyrocketed initially but came crashing back to zero within days.
- SafeMoon: Despite initial marketing and hype, its price has started to plummet since its launch, raising doubt about its long-term viability.
Precautions:
- Avoid investing in crypto due to social media hype and the fear of missing out.
- Understand the fundamentals of crypto, particularly if you are interested in it.
- ‘Guaranteed Returns’ are false claims most of the time, so don’t get carried away by the promising word.
2. Phishing Frenzy
This refers to the SMSs and e-mails that come from third parties posing as if they’re from official sources.
But they often contain malicious links, which, if clicked, can install malware that can wipe the crypto and send money to the fraudster’s account.
Example:
- Crypto.com: Fraudsters impersonate Crypto.com and send emails with malicious links to steal login credentials and crypto assets.
- Wallet Attacks: These attacks aim at users with hardware-based ledger wallets by tricking them into revealing private keys on fake websites, apps, and emails.
Precautions:
- Always take precautions before clicking any links from any source.
- Cross-check the sender’s email address and phone number.
- Don’t disclose personal information randomly.
3. Modded Apps or Fake Websites
Many investors might download crypto investment apps from 3rd-party sites or modded apps, and even the least famous apps from official sources, but all these are big no-nos.
Similarly, fake websites are often disguised with the names of other famous and established sites that can clean and sweep bank accounts once personal information is entered.
Example:
- Plutus.it: Plutus was an exchange that lured users with promises of high returns, but the authorities shut it down, resulting in profits vanishing into thin air.
- BitConnect: Again, the same plot and the same story of a lending program promising high returns but collapsing in 2018, leaving investors’ money in the dust.
Precautions:
- Download only reputed apps from the official stores of a platform.
- Always make sure the website you use for crypto investment uses ‘HTTPS’, and if it’s using only ‘HTTP’ then avoid it altogether.
- Check for ratings and reviews of every website and app, and also develop the ability to spot fake ones.
4. Rug Pulls
This kind of scam happens when fraudsters create a new cryptocurrency only to pull it later from the market, resulting in prices going nearly zero.
The creators of these temporary cryptocurrencies vanished later, along with the investor’s money; popular examples included Shiba Inu, Squid Token, and OneCoin.
Precautions:
- Don’t take crypto coins with little to no history for genuine.
- Cross-check and verify the developers of the particular crypto coins.
- Initially, invest in smaller amounts only.
5. Ponzi Pyramids
Like pyramid schemes, but for crypto, fraudsters lure investors in with a promise of high returns.
But they only provide returns to early-bird investors from the money of new ones to make the scam look genuine, eventually leaving investors with nothing.
Example:
- Plutus.it: Plutus was an exchange that lured users with promises of high returns, but the authorities shut it down, resulting in profits vanishing into thin air.
- BitConnect: Again, the same plot and the same story of a lending program promising high returns but collapsing in 2018, leaving investors’ money in the dust.
Precautions:
- Be wary of anything offering guaranteed results.
- Don’t invest money that you really can’t afford to lose.
- Gain knowledge of everything regarding investments.
Why do Scams Happen in Crypto?
There are several reasons of crypto scams taking place that include:
- Lack of Regulation: One of the most common reasons is the lack of a statutory body enforcing rules and regulations and monitoring.
- Privacy: The USP of blockchain technology can also become a negative point in situations where details of transactions can’t be traced back to the person.
- Greed and FoMo: The vision of becoming rich just by investing money clouts the judgment and fear of missing out, pushing out the impulsive decision-making that one may be regret later.
- Social Media: Social media acts as a megaphone for promotions of these scammy coins. Fraudsters use bots and fake accounts to create hype for their shady project, and innocent people succumb to it.
- Lack of Knowledge: Indeed, many people don’t want to read the fine print and avoid in-depth technical aspects of crypto, as it’s quite complex. That is where scammers take advantage of the situation.
Blockchain-Wide Attacks and Hacks
- Private Key Theft: The most common hack is where attackers try to steal the credentials of the private keys that come in use to access crypto wallets. Count it as a thief stealing keys to your house with the aim of robbery.
- Frontrunning Attacks: Exploitation of the transaction process in a blockchain in which attackers can view the pending transactions and do trickery to front-run them, then place their transaction first in the line to benefit from the price changes.Imagine someone jumping from the back of the line in a bakery only to collect items before you.
- 51% Attacks: This hack requires controlling a major chunk of computing power on the blockchain network; by doing this, the attacker can manipulate the transaction, rewrite it, or even double-spend the coin.Imagine someone controlling the traffic lights and diverting all the traffic to his restaurant.
Conclusion
In our daily lives, someone bad elements will always try to scam us; it is mostly up to us not to become a victim of it.
Researching beforehand and gaining knowledge are two of the foundations that can help us avoid scams.
Frequently Asked Questions
Q1: How can I spot a crypto scam?
A1: Look out for unrealistic promises, unverified platforms, and high-pressure tactics.
Q2: What should I do if I have fallen for a crypto scam?
A2: Report the incident to your local authorities and contact your bank or financial institution immediately to minimize further damage.
Q3: Are all cryptocurrency investment scams?
A3: No, but it’s essential to research thoroughly and choose reputable platforms regulated by financial authorities to minimize the risk of scams.
Q4: Can I get my money back if I’ve been scammed?
A4: Unfortunately, it’s often challenging to recover funds lost to crypto scams, but legal action and reporting the incident can increase your chances of restitution.
Q5: How can I protect myself from crypto scams?
A5: Stay informed, educate yourself about industry best practices, and be cautious with sharing personal information or investing large sums without thorough research.
